Football Trading Strategies For 2020
These days, professional football is a multi-billion dollar industry, with huge amounts of money being generated and spent each season. Did you know that currently there are more than twenty major football teams listed on stock exchanges? Have you ever heard of the Stoxx Europe Football Index? In this article, we will tell you which football club was the first to go public, the factors which influence the price of football teams' shares and what football trading strategies may be successful in 2020.
Football Teams on the Stock Exchange
According to the Deloitte Football Money League 2020, over the 2018/19 football season, the top 20 highest revenue generating clubs in the world amassed total revenues of USD $10.752 billion between them. This figure was an increase of 12% from the previous year and a new all-time record. Most of these top teams, however, are not currently listed on the stock exchange.
In 1983, English club Tottenham Hotspur became the first football team to list itself on the stock market. Several teams followed, and in 1991 the first stock market index of football teams was created: Stoxx Europe Football.
If we are interested in focusing on listed football teams, this index is where we must look, as it encompasses a large number of them. According to the Stoxx website, the index's free-float adjusted market capitalisation is USD $802.762 million on 22 July 2020.
The Stoxx Europe Football Index
The index's composition, made up of European and Turkish football teams, is reviewed quarterly. Currently, it is made up of the following 22 football teams:
AFC Ajax (Netherlands)
Borussia Dortmund (Germany)
AS Roma (Italy)
Olympique Lyonnais (France)
Parken S&E [F.C. Copenhagen] (Denmark)
Brondby IF (Denmark)
Sport Lisboa E Benfica (Portugal)
Teteks AD [FK Teteks] (Macedonia)
Aalborg Boldspilklub (Denmark)
Futebol Clube do Porto (Portugal)
AIK Football (Sweden)
Ruch Chorzow (Poland)
In addition to these teams, there are two more listed clubs which are not included in this index: Tottenham Hotspur, which is listed on the London Stock Exchange, and Manchester United, which is listed on the New York Stock Exchange.
This index experienced its best years in the second part of the 1990s: in January 1997 it reached a height of 458 points, which it has not come close to since. From that historical high it has gradually decreased, falling below 100 points in 2002. Ever since, the index has traded between a range of between 59 and 186 points.
Source: Stoxx.com - Evolution of Stoxx Europe Football Index price since its creation. Captured on 22 July 2020. Please note: Past performance is not a reliable indicator of future results or future performance.
If we zoom-in on a shorter period, we can see that in the last year the index reached its peak of the last decade on 19 February 2020 at 133 points. A short time later, the coronavirus pandemic broke out in Europe, resulting in various lockdown measures including the suspension of sporting competitions. This resulted in several months of severely reduced earnings for football clubs all over Europe.
Source: Stoxx.com - Price evolution of Stoxx Europe Football Index in 2020. Captured 22 July 2020. Please note: Past performance is not a reliable indicator of future results or future performance.
Looking beyond the negative impact of the coronavirus pandemic, which has affected not just football but businesses and stock markets worldwide, in recent years the index has performed well when compared to more traditional stock market indices. For example, in 2019, Stoxx Europe Football Index produced a return of around 20%, over the same time period, the FTSE 100 gained just 12%.
However, we must bear in mind that just as its annual returns can be high, so can its losses. This is demonstrated well in the historic data. In 2010, the index grew 30%, but it ended the following year with a 40% decline. One of the reasons for this high volatility is that this index and, in general, the share prices of football teams are not necessarily governed by the economic situation of a country or by international geopolitical events.
Some of the factors that influence the price of football clubs are as follows:
- Team results. If a team performs well on the pitch, the market is likely to respond positively. Alternatively, if a team does not perform well their share price will be negatively impacted.
- For example, in March 2019, the share price of Italian club Juventus shot up 16% after, against all odds, they beat Atletico Madrid and secured a spot in the quarter-finals of that season's Champions League. A month later, the team was knocked out of the competition by Dutch side Ajax and subsequently suffered its largest decrease in share price since 2013.
- Titles. Much like winning an important knock-out game in a competition can boost stock prices, a team going that step further and winning a title is another incentive to buyers in the market.
- Transfers. The arrival, or departure, of players and club managers can also cause volatility in the stock market.
- For example, the purchase of Cristiano Ronaldo by Juventus in 2018 caused their share price to appreciate by around 10% over several days.
- Furthermore, in December 2018, Manchester United's share price rose 6% following the firing of Jose Mourinho.
- Match Rights. The money paid by broadcasters for the right to televise football games is a very important source of funding for modern football clubs. Announcements of new deals tend to have a positive impact on share prices.
- Financial Management. The way a club's board manages their finances also has an impact on share price.
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Manchester United - The Wall Street Football Club
Manchester United is one of the most famous football teams in the world. Founded in 1878 as Newton Heath, it has had its current name of Manchester United since 1902. The club's vast array of honours include 20 First Division/Premier League titles, 3 Champions League titles and 12 FA Cup wins. The club was listed on the London Stock Exchange in 1991 and removed in 2005 when Malcolm Glazer gained ownership.
In 2012, the club returned to the stock market, this time making its debut on the New York Stock Exchange. Its starting price was set between $16 - $20 but in its first session shares fell to $14. Nevertheless, the club was valued at $2.3 billion, making it the most valuable team in the world.
Source: TradingView. Historical Chart Manchester United Stock. Captured 16 May 2020. Please note: Past performance is not a reliable indicator of future results or future performance.
In the above graph, we can see the historical evolution of Manchester United shares, which reached their historical maximum of $26.55 in August 2018. This increase in price followed news of several sponsorship agreements with renowned brands, such as North American manufacturer Kohler.
However, the significant rise in share price coincided with a run of poor results on the field. This contributed to a fall in price and culminated in the sacking of then manager Jose Mourinho in December 2018.
Advantages of Investing in Football Teams
The advantages of trading football shares include:
- It can be a good alternative to other traditional stock market indices and, as we saw earlier, sometimes it outperforms them.
- It offers the opportunity to diversify your portfolio into a sector which falls outside of the normal economic cycle.
- If you are a football fan, it will be easier to intuit possible rises or falls in the stock market from events or news related to the team in question.
Disadvantages of Investing in Football Teams
As with all investments, football trading strategies carry risks, such as the following:
- It is a market with little liquidity
- The high volatility of the market provides great opportunities for potential gains, however, poses just as much of a risk for large losses.
- Often, it is an unpredictable market and, in many cases, prices reflect emotion more than anything else.
If you are a beginner or professional trader and want to practice football trading strategies without risking your own capital, you can open a free demo account with Admiral Markets! Click the banner below to get started:
Investing in Football Stock in 2020: An Opportunity?
The international crisis caused by the coronavirus pandemic has hit the football world hard, causing disruption and suspensions to European competitions. This resulted in a significant loss of income for many clubs. Even though football has now returned, clubs are forced to play behind closed doors without fans, causing them to miss out on match day revenue.
Despite the dramatic situation, investors may find a good opportunity to 'bargain hunt' among listed football clubs as their share prices have fallen in response to the pandemic. Investors could adopt football trading strategies of buying shares while they are low in price and selling in the future when the global situation returns to normal and football shares are expected to rise in value.
For example, Manchester United shares were trading above $19 on 14 February 2020 and fell to $12 on 18 March. Currently the club's shares are trading at around $15.
Football Trading Strategies: Trade Borussia Dortmund Shares With Admiral Markets
Admiral Markets offers the opportunity of diversifying your portfolio by buying shares in German team Borussia Dortmund (#BVB). Customers are presented with two possible football trading strategies with BVB shares. As well as buying BVB stock directly, you can also trade using Contracts For Difference (CFDs) which allow you to take advantage of both upward and downward price movements.
Source: Admiral Markets MetaTrader 5 with MT5SE Add-on. #BVB Weekly Chart. Data Range: 29 January 2006 - 17 May 2020. Captured on 17 May 2020. Please note: Past performance is not a reliable indicator of future results or future performance.
In the above chart, we can see a long term upward trend starting in September 2010 and peaking in November 2018 when the share price exceeded €10. After this peak, Borussia Dortmund's share price moved in a sideways trend, which was broken on 8 March 2020 with the suspension of football competitions.
One of Borussia Dortmund's strengths, which has helped sustain the upward trend in recent years, is that the club has a policy of buying young, cheap players who they develop and sell for a much higher value. This is most recently evidenced by Christian Pulisic, who Borussia Dortmund acquired for free in 2015 when the player was 16 years old. In January 2019, Pulisic signed for English club Chelsea for an estimated transfer fee of $73 million.
Source: Admiral Markets MetaTrader 5 with MT5SE Add-on. #BVB Daily Chart. Data Range: 10 September 2019 - 17 May 2020. Captured on 17 May 2020. Please note: Past performance is not a reliable indicator of future results or future performance.
As we can see in the above graph, when European competitions were suspended due to the outbreak of coronavirus, Borussia Dortmund's share price plummeted from €9.46 to €4.27 on 17 March 2020. Following this decrease, the price recovered ground to over €6 on 17 May 2020 - the day after the resumption of the German football league.
Investors could potentially take advantage of the fact the share price is currently cheap, as, due to the restart of European competitions, share prices may gradually return to pre-pandemic levels.
Another possible strategy could be to trade using CFDs in the short term, taking advantage of any falls in value that may still be experienced if there are any negative developments with the coronavirus pandemic.
If you are interested in investing in Borussia Dortmund or other stocks, you can open a live account by clicking the banner below:
How Can You Buy or Sell BVB Shares?
The other of the possible football trading strategies with Admiral Markets, as mentioned previously, is trading with CFDs. CFDs are a financial product which allows you to trade using leverage. This means that you can open positions by only paying a small value of their value. Using leverage means it is possible to increase potential profit, however, it can also increase potential losses and must, therefore, be used carefully.
In addition to leverage, CFDs also allow you to benefit from both upward and downward movements in price, so you can "short-sell" shares if you anticipate an upcoming fall in price.
To buy or sell BVB shares with Admiral Markets follow these steps:
- Open either a demo or live account with Admiral Markets
- Download the MetaTrader 5 platform to your computer
- Log in to your MetaTrader trading account
- Once logged in to the platform, head to the "Market Watch" panel on the left of the screen. If the trading symbol you are looking for is not displayed, you can search for it at the bottom of the panel
- Once your desired symbol is displayed in the Market Watch, you can right click on it and press "Chart Window" to open up its price chart
- Now click "New Order" at the top of the screen and a pop-up window will appear. Here you can choose your desired volume, stop-loss and take-profit, before either buying or selling
Source: Admiral Markets MetaTrader 5 Supreme Edition. #BVB. Screenshot of the New Order window. 22 July 2020. Please note: Past performance is not a reliable indicator of future results or future performance.
Trading Football Shares - Risk Management
If you plan to start using football trading strategies on a live account, don't forget that good risk management is vital to avoid large losses. Here are some important things to consider with risk management:
- Make a trading plan and don't deviate from it
- Use stop-losses and take-profits
- Do not risk more capital than you can afford to lose
- Positions should not exceed 2% of your balance
- If you use leverage, use it carefully
- Take into account any commissions or costs incurred by your trades
If you already have a demo or live account with Admiral Markets, you can download the MetaTrader 5 platform free by clicking below:
About Admiral Markets
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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.